Oil has been an incredibly interesting commodity to watch throughout the year 2016. For most of the year, the commodity was trading at crisis levels as the world worked to find a solution to the oil supply glut. However, more recently, we’ve seen strong gains in the commodity, pushing several stocks skyward and creating incredible opportunities in the market. Now, we’re heading toward the end of the year, and as we transition to the new year, oil is going to be a hot topic of discussion. Below, we’ll talk about why oil is going to be so important to watch as we transition into the new year and how to take advantage of the opportunities surrounding the commodity.
Why Oil Is Going To Be So Interesting To Watch
The truth is that the past several months have set the stage for an interesting start to the year for oil, and just about every stock associated with the commodity. Here’s a quick recap of what we saw…
- Mid Year – In the middle of 2016, we started to see more and more news surrounding OPEC and their plans to reduce the production of oil among member countries. While few took these claims seriously in the beginning, soon enough, OPEC had reached a preliminary agreement. Under this agreement, OPEC said that it would come to a finalized agreement to reduce production by November 30th.
- November 30th – While many doubted the idea that OPEC would actually come to an agreement to reduce production, it happened. On November 30th, OPEC announced a landmark agreement that would lead to the reduction of production in OPEC member nations in the amount of 1.2 million barrels of oil per day. This agreement is set to go into effect on the first day of the new year.
- Early December – In early December, the world saw more good news surrounding oil. This time around, several non-OPEC member nations reduced the production of oil by a combined 558,000 barrels per day. This change is another that’s going to be going in place on the first day of the new year.
Since the agreements started to be announced, oil has been rallying. However, nothing has changed quite yet, and there are still big questions surrounding whether or not the production cuts will actually help. In fact, there are two big questions…
- Will The Cuts Actually Happen – First and foremost, there are several experts that argue that the production cuts, while aggressive, likely won’t happen. While producers have agreed to the cuts, until production is actually counted once the cuts become active, we won’t know just how effective these agreements actually will be.
- Will The Cuts Be Enough – Another big factor to consider here is the sheer size of the supply glut. Many argue that with the world producing tens of millions of barrels of oil more than it needs, 1.75 million barrels or so will be nothing more than a drop in the bucket.
At the end of the day, these are very valid concerns, and they will likely lead to volatility in the price of oil ahead.
How To Take Advantage Of The Movement
At the end of the day, we know that this will present several opportunities surrounding oil. However, its also important to think outside the box. Stocks like Seadrill, OceanRig, Rex Energy, and others that focus on the production and sales of oil will likely present several opportunities as well. So, keep a close eye on oil and closely correlated assets to make the most out of this movement.
What Do You Think?
Where are the opportunities surrounding oil ahead? Join the discussion in the comments below!